The longtime payroll processor is building and buying its way into larger HR software arenas.

Sixty-two years ago, Henry Taub took a risk quitting his accountant job to launch a company processing other businesses' employee paychecks. In 1961, Taub and his partners gambled again by switching to new computers from IBM to increase capacity. It was a move that over time helped the company—Automatic Data Processing Inc., commonly known as ADP—become the country's largest payroll processor.

ADP is at it again. In October, the Roseland, New Jersey, business launched a Web-based human capital management software suite called Vantage HCM that was 18 months and millions of dollars in the making. In the same week, the $9.9 billion company bought the RightThing, a highly regarded player in a budding recruitment process outsourcing, or RPO, industry that analysts say continued to grow during the recession.

ADP's product launches and acquisitions are part of a plan to expand ancillary services, international operations and human resources and business process outsourcing, which while still small, are growing three times faster than its mainstay payroll business, according to one analyst.

It's all part of ADP's strategy to step out of the back office and compete head on with the largest HR software vendors in the industry, heavyweights such as Infor, Kronos Inc., Oracle Corp., SAP, Ultimate Software Group Inc. and Workday Inc.

"ADP has been moving aggressively beyond payroll for several years," says Don Weinstein, the company's senior vice president of product management. Strategic acquisitions and new products have helped ADP deliver a comprehensive, single-source solution for clients, he says. "The combined effect of all these actions has clearly raised our profile and overall competitive position in the HR marketplace."

For today's ADP, such a lofty ambition isn't as risky as it once was. By its own estimate, the company has a customer base of 570,000 including Acuity Brands Inc., CarMax Inc. and Credit Suisse First Boston, and processes paychecks for 1 in 6 U.S. workers. With a seemingly recession-proof core business, reserves of $1.4 billion in cash and liquid assets and a credit rating higher than the U.S. government's, ADP can well afford to spend on acquisitions to expand. And it has.

In the three fiscal years ended June 30, ADP paid $534 million for 17 companies, including Workscape, which now fuels the talent management portion of its human capital management offering, and tax and compliance software-maker MasterTax. In the same time, ADP acquired HR software companies in Italy, the Netherlands and the United Kingdom, deals that have pushed its non-U.S. business to 20 percent of annual revenue.

Companies want one place to go to manage HR processes, and employees want one place to manage their worklife, and ADP is giving it to them, Weinstein says. It's not just easier, it's cheaper, he says. He points to a PricewaterhouseCoopers study that showed companies spend $1,400 per employee on HR costs, but cut that by a third if they outsource the work. "We assembled the broadest solution, and clients want to buy as much as possible from us," he says.

ADP offered payroll, HR benefits, time and labor management and other back-office HR processes through a service bureau model long before anyone had ever heard the expressions "software as a service" or "cloud computing."

The company's new human capital management suite, which is being sold to companies with 1,000 to 20,000 employees, includes all those familiar offerings. But the Web-based software has been rewritten from the ground up to do a better job of integrating services added through acquisitions and to streamline workflows. ADP is expected to use the suite for its push out of back-office offerings and into talent management and other, more strategic HR services. The Vantage HCM software includes improved search functions and a revamped user interface with an iTunes-style recommendation feature that makes suggestions for actions an employee might take based on aggregated usage patterns.

The upgrade reflects a fundamental change in software, not just for ADP but for the HR industry—what Weinstein calls the "consumerization of information technology." He says: "We no longer focus on the HR practitioner but the employee and manager," with the ultimate goal of having training-free products. It's yet another sign that ADP is stepping out of the background and into a more front-and-center role with its clients' employees.

Early reviews of the new push have been positive. Josh Bersin, president and CEO of the learning and talent management research firm Bersin & Associates, called Vantage HCM "well-integrated and complete." Gary Bragar, HR outsourcing research director at industry researcher Nelson Hall, wrote on that firm's blog: "I could easily see how this platform can make an organization's talent more effective, especially when combined with project management and implementation consultation."

It's not the only consumer-friendly software ADP has rolled out recently. In July 2011, the company launched a free smartphone app called ADP Mobile Solutions that works on Apple iOS devices, i.e., the iPad, iPhone and iPod, Android, BlackBerry and other smartphones. The app includes payment statements, time and attendance, retirement savings, a corporate directory, company news and other features, and, according to Weinstein, will work with Vantage HCM and other ADP offerings.

By acquiring the RightThing, ADP gains an instant entree into the RPO industry, which analysts say saw steady, if slower growth during the recession after companies that weren't doing as much hiring minimized overhead by outsourcing recruiting to an outside specialist. Employers slowly are starting to hire again, but job applicants' qualifications don't always match open positions, a problem that an RPO partner can solve more quickly and economically than an in-house HR staff, ADP's Weinstein says.

IDC HR program director Lisa Rowan expects the U.S. RPO industry to grow 12 percent this year after a spell where there were more deals struck but overall spending declined because companies weren't hiring much. By buying the RightThing, ADP "went from basically zero to 60 almost immediately," she says.

Besides being an industry leader, ADP chose the RightThing over a slew of competitors because it was a good corporate culture fit, and financial results "were favorable relative to their peer set," Weinstein says. "We were also impressed with the technology assets they were using to run their business."

ADP is betting big on new products and acquisitions because those businesses are growing at three times the rate of ADP's mainstay payroll business, according to HR research fellow Keith Strodtman at HfS Research. But when it comes promoting RPO, the company faces multiple obstacles, including turning it into a mass-market business. "If they figure out how to scale the business, they will have a huge customer base at which to sell these newly acquired services," Strodtman wrote in a blog post on the the RightThing acquisition.

It also remains to be seen whether ADP's acquisitions and product innovations will be enough to keep pace with competitors who aren't exactly standing still. SAP is set to sell its own Web-based HCM software suite early next year. This month, Workday raised $85 million from a group of high-profile venture funds, including T. Rowe Price and Bezos Expeditions, run by Amazon.com Inc. founder Jeff Bezos. The financing round values Workday at $2 billion and sets it up for an initial public offering in the last half of 2012, according to news accounts of the deal. In late October, Ultimate Software's stock price hit a 52-week high after the company reported improved earnings and revenue on continued new business growth, a trend company officials expect will continue through 2012, they told analysts in a conference call.

Competitors haven't been shy about criticizing ADP for bad customer service and higher prices. Ultimate Software published a white paper that shows it beating ADP in a side-by-side price comparison. Founder and CEO Scott Scherr, an ADP executive in the 1980s, has publicly stated that by doing a better job of automating HR tasks his business could "live off ADP's losses."

As the largest company in the payroll business, "the criticisms for being stodgy or slow moving are natural," says Timothy McHugh, an equity research analyst with William Blair & Co. in Chicago, who follows ADP's stock. While McHugh says it's too soon to call ADP's current strategy a success, he expects more acquisitions in future.

Such continued expansion is just the sort of thing ADP founder Taub, who retired as chairman in 1985 and died in April at age 83, would appreciate.